Home prices in the U.S. broke records this year. They reached a new high in April, though the pace of increase is sluggish.
This year, Buffalo, N.Y., was considered to be the hottest housing market in the nation, according to Zillow.
Potential homebuyers might also have luck in some parts of North Carolina, reveals a new report. In North Carolina (NC), Charlotte’s housing market is one of the hottest in 2024. The growth in home values is what makes the city particularly attractive to both homebuyers and real estate investors.
With its thriving neighborhoods, economic stability, and steady demand for housing, Charlotte offers a solid foundation for investors looking to turn a profit, especially through fix-and-flip projects.
But, as with any investment, fix-and-flip projects come with risks and rewards. Many investors look into financing options known as fix-and-flip loans to make these projects feasible.
Here, we’ll break down the benefits of these loans and what you should keep in mind before jumping in.
What is a fix-and-flip Loan?
A fix-and-flip loan is designed specifically for investors looking to buy, renovate, and sell a property for profit, usually within a short time frame. Fix-and-flip loans can be risky. Yet they offer a lucrative opportunity for experienced real estate investors seeking quick returns.
Unlike traditional home loans, which are often structured for 15 to 30 years, these loans are short-term. They are meant to be paid within 12 to 18 months.
3 Benefits of Fix-and-Flip Loans
So, why choose a fix-and-flip loan for your real estate project in Charlotte? Here are a few of the main benefits:
1. Access to Quick Cash
A traditional mortgage in Charlotte takes weeks to secure. Fix-and-flip loans, however, are often approved within days.
This speed is crucial in Charlotte’s booming housing market. There, home values have risen 2.4% over the past year and inventory is low, informs TruLoan Mortgage. In addition, homes there sell within 53 days. Any delay could mean missing out on a profitable deal.
When you’ve got quick access to cash, you can jump on a deal, secure the property, and get right to work on those crucial renovations without delay.
2. Less Emphasis on Credit Score
Traditional mortgage lenders dive deep into your credit history and may get stuck on a lower score. But fix-and-flip lenders are more focused on the after-repair value (ARV), i.e., the potential profit of the property you’re flipping, rather than your financial background.
If you’ve got a solid property with strong resale potential, you could still secure a loan even if your credit isn’t perfect. You can break into the market with a less-than-ideal credit score.
3. Funding for Renovations
Instead of pulling from your savings or searching for extra funds, fix-and-flip loans often bundle the cost of renovations right into the loan itself. You can focus on finding the right property and planning your upgrades without stressing about where you’ll get the cash for each stage of the project.
Most lenders will work with you to make sure the budget aligns with your vision and expected resale value. This helps ensure you’re not under or overspending on the rehab. You’ll have to share a detailed plan of the renovations you aim to complete, keeping everything on track.
Key Considerations Before Taking a Fix-and-Flip Loan
Of course, like other loans, there are things to think about before jumping in:
1. Market Knowledge
In a city like Charlotte, with its diverse neighborhoods and fast-growing population, knowing the ins and outs of the market is important. This includes understanding which neighborhoods have high demand, what types of homes buyers prefer, and what updates yield the most ROI.
For example, the South Charlotte zip code 28277 is hot. Homes in South Charlotte are selling quickly—averaging just 13 days on the market. But the competition is also fierce. So, having your finger on the pulse of emerging neighborhoods—places that are up-and-coming but not quite in the spotlight yet—can give you a major edge.
2. Quick Turnaround Requirement
The short-term nature of these loans can be a double-edged sword. You’ll need to stick to your renovation schedule and get the property sold quickly to avoid paying extra interest or extension fees.
Real estate in Charlotte generally moves fast. But, if your project faces delays due to unexpected repairs or slowdowns in the real estate market, those costs can add up quickly.
3. Higher Interest Rates
The interest rate of this type of loan is typically higher—often between 8% and 12%—than a traditional mortgage, says Forbes. But there’s a reason for it.
These loans are short-term and designed for quick-turnaround projects, so lenders charge more interest to offset the risk and the faster timeline. Hence, you’ll need to make sure the potential profit on your project can offset these higher costs.
Is a Fix-and-Flip Loan Right for You?
A fix-and-flip loan could be a good choice if you’re serious about fix-and-flip investing in Charlotte. It’s crucial to do your homework, however.
Before diving in, look at comparable sales in the area, understand your renovation costs, and have a realistic timeline for the project. Also, make sure to find a reputable lender who can offer you fair terms and guidance through the process.
